Perspectives

Consumers Continue to Overestimate Mortgage Requirements

Lenders Have an Opportunity to Help Close the Knowledge Gap

Mark Palim & Sarah ShahdadWe've seen consistently in Fannie Mae's National Housing Survey® that the vast majority of Americans prefer homeownership over renting a home; however, many are uncertain or mistaken about the qualifications required to get a mortgage.1,2 Despite increased exposure to credit scores and online resources, consumer understanding about what it takes to qualify for a mortgage has not improved since our original study in 2015, potentially discouraging willing and qualified Americans from taking steps toward homeownership. We see an important opportunity for lenders and other mortgage market participants to work toward narrowing this knowledge gap, utilizing more effective mortgage education that is timely, customized, convenient, and simple.

What we found:

In a 2018 study, Fannie Mae conducted a nationally representative, online survey of over 3,000 respondents, in partnership with Ipsos Public Affairs, in order to benchmark trends in consumers' understanding of mortgage qualification requirements. Compared to our 2015 study, we found that:

  • More consumers report seeing their credit score recently, but close to half still cannot recall what it is.
  • Although the usage of online sources of mortgage information is becoming more common among consumers, they still overestimate the minimum credit score and down payment necessary to qualify for a mortgage, and remain unfamiliar with low down payment programs.
  • The lack of mortgage qualification understanding is pervasive, even among current homeowners, those who say they are actively planning to purchase a home in the next three years, and those who successfully answered questions testing general financial literacy.

What it tells us:

Current sources of mortgage education and information are insufficient. Even those actively planning to become homeowners in the next few years (i.e., those who should be exposed to more information) are only slightly more confident or knowledgeable than others.

While viewing one's credit score is a good start, consumers need to understand what to do with that information. Although Americans are confident they could improve their credit score, monitoring a credit score is not the same as understanding how the score impacts their financial situation.

For some Americans who would like to own a home, they could qualify for a mortgage but may assume homeownership is not a possibility. As a result, they may avoid further research or preparations, such as saving for a down payment or improving their credit. 

Avenues for Closing the Knowledge Gap:

Mortgage market participants who can find ways to improve consumers' understanding of the requirements and process to qualify for a mortgage have an opportunity to increase the number of qualified borrowers. And for those consumers who don't yet qualify for a mortgage, having a better up-front understanding of the requirements they need to work toward can help reduce costly and frustrating mortgage application denials.

More effective mortgage education should be timely, customized, convenient, and simple. Customized information, delivered right when someone is making a decision, including whether to buy, how much to save, what they can afford, or what type of mortgage to get, leads to better consumer outcomes.3

Optimizing mortgage information for mobile devices may be part of the solution. Americans – especially younger ones – are increasingly using mobile phones for financial services. Some mobile apps already help consumers budget, invest, and manage debt. Mortgage tools could be integrated into more of these apps to provide step-by-step advice.

Education should leverage multiple channels to reach consumers. Past research tells us that people prefer a mix of digital and human contact.4 Even with significant development, mobile and online resources alone may not be sufficient to guide consumers through the complexities of preparing for and getting the right mortgage.

If potential borrowers have the information to assess and improve their own qualifications to get a mortgage, they may be encouraged not to give up on their homeownership aspirations prematurely.

Mark Palim, Vice President and Deputy Chief Economist
Sarah Shahdad, Market Insights Researcher

June 5, 2019

Opinions, analyses, estimates, forecasts and other views reflected in this commentary should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Changes in the assumptions or the information underlying these views could produce materially different results.

1 Palim, Mark. June 27, 2018. Are Affordability Perceptions Reducing Household Mobility and Exacerbating the Housing Shortage? Fannie Mae.

2 Palim, Mark. December 10, 2015. Survey Reveals Significant Gaps in Consumer Knowledge of the Requirements to Qualify for a Mortgage. Fannie Mae.

3 Fernandes, Daniel, J. G. Lynch, Jr., R. Netemeyer. 2014. Financial Literacy, Financial Education and Downstream Financial Behaviors. Management Science.

4 Cason, Henry. August 28, 2018. Now is the Time to Adopt Digital Mortgage Technology. Fannie Mae.